Economics Blog

Obama’s Social Security stand-down

Recognizing the idea was doomed politically, President Barack Obama has decided to drop a controversial Social Security plan from his proposed budget, to be unveiled soon.

The idea, which would have held down annual cost-of-living increases for Social Security recipients, was proposed in the name of long-term entitlement reform. That's still a notion many national leaders believe needs to happen, but few are willing to accept the pain anytime soon.

Raise your hand if you think enraging senior citizens is a popular idea.

So, the idea of making the so-called chained consumer price index, or CPI, the standard for future raises in Social Security checks is now off the table and on the shelf, even though economists believe that such a change would better reflect the true cost of living. (Spoiler alert: We won't be using the term "chained CPI" again in this piece.)

Safe for now

Social Security recipients don't have to worry about further belt-tightening in the immediate future. They've already been under a squeeze from remarkably low inflation. The 2014 cost-of-living-increase for the more than 57 million Social Security recipients was 1.5 percent.

The system remains at least a couple of decades away from the feared day when it becomes incapable of paying the benefits that have been promised.

Not a current crisis

Washington is better at putting out raging fires than noticing potential sparks. One respected watcher of the federal budget says with Social Security not in crisis at the moment, Obama had to recognize the political reality that his plan would not win sufficient support from fellow Democrats.

"It didn't make any difference whether the president wanted to reform entitlement programs or not," says Stan Collender, national director of financial communications for Qorvis Communications. "It wasn't going to happen. There was no reason for him to get out in front of it under those circumstances."

One thing certain: Political divide

Obama's retreat drew praise from one of the more liberal members of the Senate, Bernie Sanders, I-Vt. "I applaud President Obama for his important decision to protect Social Security," said Sanders. He and more than a dozen Senate Democrats had signed a letter urging Obama to avoid tinkering with Social Security benefits in the proposed spending plan.

Among the Republican leadership, the decision drew criticism. "This reaffirms what has become all too apparent. The president has no interest in doing anything, even modest, to address our looming debt crisis," said a spokesman for House Speaker John Boehner, R-Ohio, in a statement.

Taxes need reform, too

The Social Security funding issue is a bit like trying to steer a supertanker: The quicker you get ahead of it, the better you stay on course. When and if entitlements are eventually tackled, Collender thinks tax reform will be part of the mix.

"That's not going to happen until 2018, 2019 at the earliest," he says. "Tax reform is going to have to include a tax increase. There's no way Republicans are going to consider a tax increase before the 2016 presidential election."

In the meantime, there's a midterm election this year, with some observers thinking Democrats could lose the Senate.

The tax-reform 'wayback machine'

The last time Washington really did something about tax reform was in 1987, when President Ronald Reagan was in office. Collender recalls that that was relatively less complicated because taxes didn't need to be raised.

"That took three years, and that was a far simpler process," he says. "That was going to be revenue neutral and this one is going to have to be revenue positive."

That's Washington-speak for the need to raise taxes. One thing that's different between now and the Reagan years is how the nation's long-term debt has built up since then.

The president's budget is to be unveiled March 4. As for fixing the country's long-term financial challenges, take a deep breath -- it is going to be a while. Looks like you can check back in about four or five years.

Do you think entitlements, like Social Security, need reform? What about also tackling the complicated tax system while we're at it?

Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.

1 Comment

Carlos DiCaprio

February 23, 2014 at 11:59 am

Social security retirement was implemented as insurance that we had to pay for to reap the benefits. We still do. It was supposed to be an untouchable fund. Since implementation, our federal government has chosen to "borrow " from the fund thus representing the first and most glaring malignment of the SSI system.

Entitlements on the other hand, don't represent benefits of a fund paid into. Thus, entitlements are effectively "free money".

Now it seems that our nation's leaders are further demeaning the substance of SSI by lumping it into the grabbag of freebies.

Isn't this further evidence of subversion of the real intent behind established systems?

It's not just seniors who are affected by such thinking. Those under 62 should recognize their time is coming too.

Bankrate.com is an independent, advertising-supported publisher and comparison service. Bankrate may be compensated in exchange for featured placement of certain sponsored products and services, or your clicking on certain links posted on this website.